Multi-dwellings dominate home building

Thirty years ago, townhouses, apartments, semi-detached homes - anything except free-standing houses - made up less than one-fifth of all residential building approvals.

The monthly building approvals figures from the Australian Bureau of Statistics go back as far as July 1983. And in that month, multi-unit developments made up only 17.4 per cent of the total.

Since then, though, their importance has grown. At last count, in the November 2012 figures released by the bureau today, that proportion had risen to 42.5 per cent, nearly two and half times the share measured in the mid-1980s.

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Economists have traditionally seen free-standing homes as the benchmark for gauging the strength of the housing sector. That view could be justified in two ways.

First, at more than four-fifths of the total, free-standing homes really did make up the lion’s share. And second, perhaps more importantly, the multi-dwelling category is much more volatile from month to month.

One way that volatility can be measured is by comparing the seasonally adjusted series which economists look at most closely with the smoothed version of it produced by the bureau, the so-called trend measure.

For houses, the monthly change in approvals over the past year has been 3.6 percentage points away from the change in the trend measure on average.And often they are a lot closer together.

So the November figures released by the bureau today are not unusual, with the seasonally adjusted number of house-building approvals up by 0.2 per cent and the trend measure not far away with a monthly decline of 0.1 per cent.

But the multi-unit category posted an adjusted rise of 6.9 per cent and a trend fall of 0.8 per cent. That’s typical of the gap between the monthly changes in the trend and adjusted series, which has averaged 18.4 percentage points over the past year.

There’s no getting around the fact that the multi-unit category is much, much more volatile than the single houses category.

And, because the more volatile component is growing faster, that’s making the total more volatile too. For all residential approvals, the gap between the monthly trend and seasonally adjusted changes has been eight percentage points on average over the past year.

In the 1980s and 1990s the gap was more typically around four percentage points.

It’s always been difficult to make sense of the monthly building approvals series. This shift in the composition of building work just makes the job a little bit tougher.There is an upside, though.

If you have a particular barrow to push, life might be getting a bit easier. The more pronounced ups and downs mean it will easier to argue that the housing industry is in a slump.

Irrespective of the underlying trend, there is likely to be a sick-looking number for you to use as evidence every other month. Of course, you’ll have to take turns with whoever might be trying to tell the story that the industry is booming.

That’s because a downward zig is more likely than not to be followed by a healthy-looking upwards zag.